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Budget 2013: Read the small print

Emily Coltman

The Chancellor didn’t start talking about useful measures for small businesses until almost the end of his Budget statement.

As ever, the devil is in the detail, and the full Budget report contained a lot of potentially useful points - and also some that could be bad news. This is what I’ve picked out as the key issues.

Employment Allowance

Towards the end of his speech the Chancellor announced a new Employment Allowance, which will be introduced in April 2014 and will cover the first £2,000 of employer’s National Insurance for all businesses. This could mean that many of our customers no longer have to pay employer’s NI.

The detailed documentation promises that the operation of this will be simple, “employers will only need to confirm their eligibility through their regular payroll processes,” and the £2,000 will be deducted from payments of PAYE over the course of the year.

Partnerships: simplification or restriction?

The detailed report promised a review into how the taxation of partnerships could be simplified, but also highlighted planned consultation into removal of the “presumption of self-employment for LLP partners to tackle the disguising of employment relationships through LLPs”. This could mean that LLP partners would be taxed as employees rather than as self-employed individuals.

Another proposed consultation was to “counter the artificial allocation of profits to partners to achieve a tax advantage”.

This is one space I will be watching closely.

Growth Vouchers programme in England

£30million has been pledged to a Growth Vouchers scheme for small firms in England: “this programme will test a variety of innovative approaches to helping SMEs overcome barriers to achieving growth, such as limited use of external advice. It will target a number of specific areas of advice such as making a successful loan application to a bank or taking on an employee."

Again I’ll be keeping my eye on this to see how it will work, whether funding will be given to existing services such as ICAEW’s Business Advice Service, or whether this will be part of a new national incentive.

Cut that Red Tape

A second phase of the Red Tape Challenge will be launched this summer.

There is also a consultation planned for a process to allow Class 2 National Insurance to be collected in the same payment as income tax and Class 4 National Insurance for the self-employed. This would be a useful simplification but a small one, and combining the two self-employed National Insurance rates would have been more useful still.

Borrowing cash from a close company

If you’re the director of a limited company, your accountant might warn you that your “director’s loan account is overdrawn”. This means that you owe the company money, which can mean there’s extra tax to pay.

In Finance Bill 2014, which isn’t expected to become law until 2015, the level at which loans by a company to its staff become taxable benefits will be raised from £5,000 to £10,000.

But that doesn’t remove all the risk of extra tax - if you are a shareholder in a close company, then any money that you owe to the company can incur extra tax. The best way forward is to speak to your accountant and make sure that you don’t take out more than you put in!

The detailed report of this year’s Budget promised consultation to “make the rules fairer and simpler” when money is borrowed from companies by their owners, but also said:

“The Government will close three loopholes used to attempt to avoid the tax charge on loans from close companies to individuals with a share or interest in the company [a participator]. This measure will have effect from 20 March 2013.”

That’s today.

And they haven’t said in the detailed report what those loopholes are!

UPDATE: Two of the loopholes deal with payments from a close company to intermediaries such as trusts and LLPs, where a participator and the company are partners. The third closes the loophole where the loan is repaid just before the deadline, removing the charge to tax, and then the loan is paid out again. Many thanks to Matt Saunders for the link with this information.

One-line nuggets

Quicker credit and debit card payments: I quote, "The Government has secured a commitment from the payment card industry to reduce the time it takes for credit and debit card payments to reach SMEs' bank accounts by up to three days, by using the Faster Payments System". This is very good news for small business cash flow.

SEIS: Companies bought from an agent “off the shelf” will also be eligible for SEIS relief from 6th April 2013.

Low-emission cars: Capital allowances of 100% of the value of a low-emission car will still be available until 31st March 2015, but from April 2013 the limit for a “low-emission car” will fall from 110g/km to 95g/km. Using Ford cars as an example, that rules out all but a couple of Fiesta models - even Kas’ emissions are over 95g/km.
Leased cars will also no longer be eligible for the 100% allowance.

Disincorporation relief: For five years from April 2013, goodwill in a limited company, and an interest in land, can be transferred to shareholders without a corporation tax charge arising on the transfer. This will be available for businesses with “total qualifying assets” of £100,000 or less.
The document didn’t explain what “qualifying assets” are, unfortunately.

VAT threshold increase: From 1st April 2015 the threshold to register for VAT goes up from £81,000 taxable sales in a year to £82,000.

VAT mini one-stop shop: The government plans, from 1st January 2015, to make it possible for UK-based businesses making sales in the wider EU to only have to register for VAT in the UK, and account in a single VAT return for VAT due anywhere in the EU.

Cash accounting: The proposed cash accounting scheme for small businesses will go ahead but it will be open to businesses with receipts up to £79,000 a year. This threshold has been raised in line with the VAT threshold. Once on the scheme a business will have to stay in it until its receipts reach £158,000 a year. This is another revision to the rules; the initial draft made it acceptable to switch in and out of the scheme, but this option has now been removed. Another change is that the simplified rules for motor expenses are now optional rather than compulsory for businesses that opt into the scheme.

IR35: The only mention of IR35 was a short and unclear sentence, “The Government will make a small amendment to the existing IR35 provisions to equalise the tax and NICs treatment of office holders, and put beyond doubt that the legislation applies to office holders for tax purposes." I’m still waiting to find out what this actually means.

So, some good news such as the Employment Allowance, some not so good such as the fact that IR35 is still with us, and plenty to watch in the coming months.

This blog post was first published on 20 March 2013 and was last updated on 1 April 2015.